Crooks net $11m in bitcoin scams - research

Crooks net $11m in bitcoin scams - research

Scammers have duped unsuspecting victims out of at least $11 million in bitcoin over the last four years, according to researchers from Southern Methodist University, Dallas.

While simple theft dominates the crypto-currency headlines, more imaginative scams are also costing thousands of bitcoin fans, Marie Vasek and Tyler Moore found in their paper There's No Free Lunch, Even Using Bitcoin: Tracking the Popularity and Profits of Virtual Currency Scams.

The empirical study turned up four types of schemes on the web designed to attract suckers with get-rich-quick promises before making off with deposits. In total, the researchers found 41 scams occurring between 2011 and 2014, in which fraudulent sites stole bitcoin from at least 13,000 victims.

Says Moore: "Because the complete history of Bitcoin transactions are made public, we have been able to inspect, for the first time, the money flowing in and out of fraudulent schemes in great detail. It’s like having access to all of Bernie Madoff’s books for many of these scams."

The most prevalent scams are Ponzi schemes promising investors outlandish interest rates on deposits. Another popular trick sees victims pay upfront for bitcoin mining equipment which never turns up, while wallet and exchange scams have also duped users.

Vasek and Moore found the data by running a Structured Query Language database dump of all relevant bitcoin transactions, before analysing addresses of both victims and the siphoning transactions of scammers.

The researchers only managed to track revenues for about 21% of the scams, meaning, says Vasek: "Our calculation of $11 million is almost certainly at the low-end,” said Vasek. “The amount of Bitcoin that depositors have lost to these scams is probably many millions more."

Comments: (3)

A Finextra member
A Finextra member 30 January, 2015, 09:32Be the first to give this comment the thumbs up 0 likes

As soon as there is volume and traction in a payment method, and the volumes justify the cost of execution the fraudsters move in.... its interesting that Applepay has already (reportedly/unconfirmed ) suffered up to 6% fraud from skimmed card data use.     I guess there IS such a thing as a free lunch, if you are in the fraud business.... you get someone else to pay for it!

A Finextra member
A Finextra member 30 January, 2015, 18:55Be the first to give this comment the thumbs up 0 likes

FYI - the Apple Pay fraud was not due to Apple Pay use, but rather by those cards being used on Mag Stripe / Online transactions that did NOT use Apple Pay. I have already given feedback to the author of thsy Blog stating it is wrong and misleading to publicise Apple Pay (for their dual level of security TouchID + Individual transaction token generated from SE) for fraud on that 6% number that occured outside of Apple Pay usage. 

It is like saying... well 6% fraud on Amazon, wherein the hack was at the Google Wallet (as an example) and a legit transactions occured at Amazon. Issuer suffered 6% fraud on its portfolio from other transaction ouside Amazon in this case. 

A Finextra member
A Finextra member 01 February, 2015, 09:22Be the first to give this comment the thumbs up 0 likes

Are you saying there has NOT been any fraud through Apple pay (regardless of the point of compromise)....  the question here is not where the compromise took place but what method was used to perpetrate the fraud!!!

If a fraud DOES occur through Applepay -  then who is liable?  you sound like you understand th internal workings of the system... Sadly for me - i have  a low hit rate on the fingerprint scanner on my Iphone 5 (dry fingers)  so am not confident that i will be able to use Applepay reliably when i get my 6.... any news on how reliable the fingerprint scan is on 6's?